An educational blog for teachers and students.

Four steps to make your money work for you

Posted on April 26, 2018

You’re new in the classroom. Or maybe you’re still looking for your first teaching gig. Either way, you’ve got a full plate (and probably a full classroom).

During the school year, you barely have time to relax, let alone figure out a complex plan to put you on the path to financial success. Luckily, there are ways to make your money work for you. Here are four things you can do right now to help keep stress out of your wallet.

1. Budget

The first thing you can do to make sure you’re making the most of your money is learn how to manage it. A budget can help you do this, and determining the right budget for you may not be as complicated and stressful as you think. You can even break it down into three steps:

Determine your net income. Do you know what your net pay is? There are a variety of deductions taken out of your paycheck. Some deductions are required, such as federal and state income tax, Social Security and Medicare tax (FICA) and State Retirement System contributions. Other deductions are elected, such as health insurance. Your net pay is simply what you take home after all deductions are made. Once you figure out your net pay, you can really get started on budgeting and managing your money.

Calculate your monthly expenses. Take a little bit of time to add up what you really spend each month, such as food and gas, as well as money you want to save for an emergency fund or other savings. Understanding how much you actually spend is key. How do you spend your money on average each day? Are there any expenses you can reduce? This exercise will help you see opportunities to reduce your spending.

Create a budget and stick to it. Now that you know exactly what you make vs. what you spend, it’s time to decide how much you want to allow yourself to spend. This doesn’t have to be as frugal as it sounds—don’t forget to set aside some money for fun!

2. Credit

Adulting is hard, but you can make it easier on yourself by ensuring you have a good credit score. Your credit score is important because it affects whether you can get credit, the amount of credit a lender will give you and the interest the lender will charge. So basically, you need credit for adult things, and the higher your credit score, the better. But how can you get a better credit score? There are four simple things you can do.

Pay your credit card balance in full each month. If you have a balance of $2,000 with an annual percentage rate (APR) of 20% and you make the minimum monthly payments, it could take you 26 years to pay it off and cost almost $6,500 in interest charges. Pay in full when you can to avoid some of the credit card’s fees, charges and high interest rates.

Pay your bills on time. If you don’t already, automate your recurring bills. Arrange for an automatic withdrawal from your checking account to cover recurring expenses, such as your mortgage payment, utility bills, health club membership or insurance payments. This takes the hassle out of making scheduled payments and helps avoid late charges. It’s also one less thing you have to do in your precious hours outside the classroom.

Don’t keep taking out new cards. To keep the number of credit cards you have in check, try to resist the urge to open a credit card to get 10 or 20% off an item. A few cards are fine, but too many open credit lines, even if they have zero balances, could be considered a negative mark on your credit score.

Check your credit report once every 12 months. With all the advertisements for “free credit scores,” where should you really check your credit? You can get your credit report free once every 12 months from annualcreditreport.com. This is the only website authorized to fill orders for the free annual credit report you are entitled to by law. Other websites that claim to offer “free credit reports,” “free credit scores” or “free credit monitoring” are not part of the legally-mandated free annual credit report program. In some cases, their “free” product comes with strings attached.

3. Protect

If you want to head down the right path for financial success, don’t try to cut your spending by skimping on insurance. Insurance gives you protection against medical costs or major loss of personal property, like your home or car. It can also help protect your loved ones if the unexpected happens. It’s a necessary cost, but there are many options available to you.

How much can you expect to pay for insurance? Many things will affect your rates. For example, auto rates are influenced by your distance to work, type of car, where you live, driving record, type of coverage, etc. Different insurance companies offer different kinds of discounts, so look for any that you or your spouse might be eligible for.

How much is home or renters insurance? Considering the value of having homeowner’s insurance to protect your home, you might be wondering what the cost will be. But even if you’re not quite ready or able to buy your first house, it’s important to remember that if you’re renting, your belongings aren’t covered under your landlord’s policy. The good news? The average cost of renters insurance is just $12.50/month.

Life insurance might be the last thing on your mind right now, but buying life insurance when you’re young and healthy is less expensive than when you’re older. Even if you don’t have a spouse/partner or children, it’s worth taking a look if someone else would be responsible for your outstanding debts.

4. Save

Including a savings plan in your financial planning can help you respond to the unexpected, but how do most people save?

You might often hear someone say, “I live paycheck to paycheck, and I don’t have anything left over to save.” Those people pay their bills, buy clothes, go out and then save whatever is left. However, you want to save first, pay your bills and then spend what is left.

Think about income taxes. The federal government learned a long time ago that most people are not disciplined enough to save their money and pay taxes at the end of the year. Instead, the government requires employers to withhold taxes up front and pay employees their net pay. You will want to do the same thing. Pay yourself first. It can help put you in a good place for a great future.

Put your savings on autopilot. For example, arrange to automatically transfer a certain amount each month to your savings. This approach helps you stick to a savings plan because the contributions are made like clockwork, and as you’ll see, the results can be impressive.

But how impressive? Well, let’s say you’re 25 and put away $5 a day for the next 40 years at a 6% annual earnings rate. According to this assumption, you could have more than $300,000 when you’re 65.

If you start doing these four things now, they may help you achieve financial success later in your teaching career and in retirement.

1The time and cost of making minimum payments is dependent upon the type of minimum payment your credit card requires. Find out more here.

2$12.50/month premium is estimated based on Horace Mann’s national average renter’s premium of $150/year as of 7/1/2017.